Foreign airlines, forex and high fares
It has been inscrutable why Nigeria’s population and other economic indices have not reflected in favourable international airfares out of Nigeria over the years. The fares have always been incredibly high in and out of seasons. The transactions have proven wrong even Isaac Newton’s third law of motion, which states that, “what goes up must come down,” as the fares keep rising and rising. Even recently the Switzerland-based IATA, the trade association representing over 290 global airlines, reviewed the dollar exchange rate for the sale of tickets for flights out of Nigeria from 305 to 326 per dollar. The fluctuation in the exchange rate has in the last few years forced some foreign airlines, including the United Airlines, which used to fly between Lagos and Houston, and Spanish carrier, Iberia to shut down their services in Nigeria. They both stop operating the Nigerian route because of the difficulties in converting proceeds from ticket sales into dollars for repatriation. This by extension has led to loss of livelihoods as the ground staff of the airlines have been thrown into the labour market and some travel agencies may have been forced out of business because ticket sales have plummeted. For most corporate bodies, business travel budgets will be adversely affected. This is part of the unease in doing business in Nigeria where we daily crave for foreign direct investment.
If this situation is not checked, it is likely to get worse not just for international flights, but also for the local flights. Major actors in the Nigerian aviation sector say that the current federal government foreign exchange (FX) policy is causing forex shortages and taking a big toll on local airline operators too. It has made the operating environment crushing, leading to liquidation of many local airlines. Available statistics show that over 150 airlines have gone into extinctions in the last few years and only a few are in operation. A roll call of some airlines that died recently includes Okada Air, Kabo Air, ADC, Bellview, Chanchangi, Sosoliso, Virgin Nigeria, which later became Air Nigeria, Afrijet, Discovery Air amongst others. However, Arik Air, Aero Contractors, Air Peace, Med-View, Dana Air, Overland, Azman Air and First Nation are the eight surviving airlines with all their carriers totalling 44 aircraft. Perhaps, were it not for the Assets Management Corporation of Nigeria (AMCON) that took over the management of Arik airline for alleged indebtedness, the story would have been different by now. This is unfortunate given the promise of the major airline when it began operation less than two decades ago.
Apart from danger of airlines going into extinction, when aircraft are due for maintenance, but are unable to raise the required foreign exchange to carry out the maintenance schedules, passengers’ safety becomes risky because airline operators may be tempted to cut corners in their maintenance culture as scarcity of funds makes it harder to procure spare parts among others.
In the same vein, the foreign exchange paucity may affect major checks that are carried out overseas. The paradox here is that airlines earn their revenue in naira while they procure and maintain in foreign currencies. Meanwhile, the value of the naira has not been helpful in recent times and so more fund will be required for maintenance. This is disheartening for a country with more than 50 years of airline operations. In contrast, some African countries, which are far behind Nigeria in aviation have developed and continued to grow in terms of running a profitable aviation sector. Ethiopian Airline for example has 92 aircraft and it is adjudged number one in Africa. The country is not rated as one of the giants of Africa when economy comes to be discussed and measured.
Obviously, the surviving domestic airlines in Nigeria are all challenged with the age long affliction of harsh and crippling operating environment occasioned by fluctuating exchange rate, poor government policies, multiple taxation, infrastructural deficit, non-implementation of gazetted policies that will enhance performance, and poor access to credit.
There is no doubt that these multiple problems steadily erode revenue and do not encourage growth of airlines, rather them. Therefore, it is obvious that the present operating environment cannot guarantee survival let alone attracting more investors.
Against, the backdrop that local airlines are catalysts for economic development, used to energise other sectors, providing seamless intra-connectivity by taking passengers from one state to another, it is imperative that the National Assembly should urgently review all the legislations affecting airlines operations. Besides, relevant government ministries, agencies and departments should come up with favourable foreign exchange policy to address the challenge of foreign exchange rate in the aviation sector because aviation friendly countries have and enjoy benefits of stable and easily convertible currencies without draconian policies that adversely affect airline operations.
Also, government should treat the aviation industry as an infant industry and give them tax moratorium. At the same time, professional managers should be used to run the critical areas of operations. Mediocrity nurtured by poor customer relations has been fingered in the industry in the country.
The Aviation Ministry should not be seen as an innocent bystander, in this connection. They should think through modern and attractive policies that will lead to growth and sustainable business environment of the industry that is so, so needed for rebranding the business environment. It is gratifying to note that the industry is part of the target of recent executive orders aimed at ease of doing business in the country.